Debt-free people aren’t debt-free because they make a lot of money. They’re debt-free because they make smarter, more educated decisions.
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A person who makes $250,000 per year and is undisciplined and disorganized is much more likely to run up debt than a person who makes $50,000 per year and commits to living within his or her means.
Here are five traits of people who struggle to get out of debt, and recommended changes they can make in order to become debt-free.
1) They don’t closely monitor credit card and bank statements.
If there’s a mistake or a new fee, the only person who will question it is you. People who can’t get out of debt don’t pay close enough attention to their statements, or they completely ignore their statements all together. Don’t let the mistakes or deception of other people create debt for you.
If you’ve missed a payment or incurred some type of late or interest fee, ask for forgiveness. Many lenders will waive such fees if you’re not a repeat offender. If you notice a suspicious fee, demand an explanation. If you’re not satisfied with the explanation you receive, explore other options and don’t be afraid to take your business elsewhere.
2) Their budgets are too tight.
If you’ve added up your monthly expenses and they equal your monthly take-home pay to the dollar, this is no reason to celebrate. You’ll probably struggle to break even each month.
Assume you make at least 10 percent less than you actually do, round up your expenses, and create a line in your budget for unexpected miscellaneous expenses. For example, if you make $75,000 per year, base your budget on no more than a $65,000 annual salary – minus all deductions, of course. If you spend $225 per month on gas, allow for at least $250 when you create your budget.
3) They don’t do their homework.
Every financial decision should be researched. Debt-free people know how much they should be paying for certain products and services, and they know what language to look for in their agreements. If they do incur debt, they know why and plan strategically to pay off that debt as quickly as possible.
On the other hand, people who can’t seem to shake their debt aren’t taking enough responsibility for their financial decisions. For example:
- They haven’t determined where their debt lies (credit card, loans, etc.) and what purchases led to that debt.
- When they buy a car, they don’t know how to calculate financing and don’t question the math of the salesperson.
- If they’re not familiar with a financial agreement, they just sign it to get it done instead of having a qualified professional review it.
4) They only plan for the short-term.
Purchases and spending habits shouldn’t be based on what you have in the bank right now, and they shouldn’t be based on expenses you’ve forecasted for the next week, the next month or even the next six months.
Are you planning to move, buy a car, look for a new job or have a baby next year? Did you just get a “save the date” for a wedding in California next summer? Are you hoping your child attends college in 15 years? You better start saving now.
5) They don’t change.
You’ll never get out of debt if you don’t change your lifestyle and the spending habits that created your debt in the first place. Debt-free people are capable of cutting back, avoiding impulse buys and showing restraint.
Do you really need to spend $250 on a new smartphone as soon as you’re eligible for a “discount” when the device you have is just fine? Do you need a new car as soon as you’re done paying for the one you have? This also involves the little things, like making lunch at home, using coupons at the grocery store, and turning the heat down while you’re at work during the day.
Recognizing that you have debt is the first step. If you don’t adjust how you live and spend, your debt will only get worse.
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